2025 (11) TMI 649 - AT - Income Tax

Appellate authority upholds deletion of additions under s.68; creditor evidence, loan repayments negate unexplained cash credit and s.69C disallowance

ITAT affirmed CIT(A)'s deletion of additions under s.68, holding the assessee furnished evidence of creditors and subsequent repayment of unsecured loans, ... Unexplained cash credit in respect of unsecured loans u/s 68 - as alleged assessee, has brought back its own un-accounted cash in the garb of unsecured loans - lenders could not be verified as summons u/s 131 of the Act were not complied - CIT(A) deleted the addition - HELD THAT:- In the present case the assessee has filed all the evidences before the AO and CIT(A) and established that the repayment of loans made in the subsequent financial year. Therefore no addition can be made u/s. 68 of the Act on the ground that the assessee has failed to meet the ingredients of Section 68 of the Act. Where the assessee has filed all the evidences qua the loan creditors before the ld. AO and loans are also repaid then the same cannot be added us/ 68 of the Act. Similarly, the case of assessee is squarely covered by the decision of Ambe Tradecorp (P.) Ltd [2022 (7) TMI 902 - GUJARAT HIGH COURT]. Disallowance in respect of interest paid on alleged loans - Since we have upheld the order of the Ld. CIT(A) deleting the addition in respect of unsecured loans by dismissing the ground no.1 of Revenue’s appeal, therefore, this being of consequential issue to the said issue, accordingly the ground No. 2 is dismissed by upholding the order of CIT(A) on this issue. Disallowance u/s 69C of the Act towards commission expenses for obtaining accommodation entries - Since we have dismissed the ground nos. 1 of the revenue appeal supra by upholding the order of the Ld. CIT(A), whereby the Ld. CIT(A) deleted the addition made by the ld. AO u/s 68 of the Act in respect of unexplained cash credit. ISSUES PRESENTED AND CONSIDERED 1. Whether unsecured amounts totalling Rs.10,25,00,000 received during the year can be treated as unexplained cash credit liable to be added to the assessee's income under Section 68 of the Income Tax Act where the Assessing Officer relies primarily on statements recorded during a survey under Section 133A and on alleged lack of creditworthiness of the lenders. 2. Whether interest paid on the above loans (Rs.16,52,278) is disallowable where the underlying loan additions under Section 68 are contested (consequential issue). 3. Whether commission payments alleged to be for procuring accommodation entries (Rs.5,12,500) are disallowable under Section 69C where the primary classification of the loan receipts as unexplained cash credits is reversed (consequential issue). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of addition under Section 68 based principally on survey statements and perceived lack of lenders' creditworthiness Legal framework: Section 68 casts an onus on the assessee to explain the identity, creditworthiness and genuineness of sources of monies credited as loans. Statements recorded during survey (Section 133A) and search (Section 132/132(4)) may be used by Revenue, but addition on that basis requires corroborative material; mere statements, especially if retracted or made under duress, lack independent evidentiary value. Precedent treatment: The Tribunal followed and applied established authorities holding that statements under Section 133A have weak evidentiary value and cannot alone sustain additions unless corroborated (decisions referenced include authorities holding that Section 133A statements are not admissible as standalone evidence; retracted statements require corroboration; and authorities holding that creditworthiness cannot be assessed solely from limited parameters such as low turnover or absence of fixed assets). The Tribunal relied on decisions supporting the proposition that repayment of loans and production of ledger/bank/confirmation/financial details negate Section 68 additions. Interpretation and reasoning: The Tribunal reviewed the material placed before the AO and the appellate authority: ledger accounts, confirmations, bank statements, financial statements/ITR of lenders, source-of-funds documentation, and proof of repayment in subsequent years. The AO's addition rested largely on survey statements of key persons that were subsequently retracted as made under duress, and on a finding of lenders' poor operational markers without acknowledging lenders' share capital/reserves. The Tribunal emphasized that (a) retracted survey statements cannot be the sole basis for addition; (b) statements under Section 133A have low evidentiary value and need corroboration; (c) CBDT guidance cautions against reliance on confessional statements made under search/survey without independent corroboration; and (d) documentary proof of identity, creditworthiness, genuineness and actual repayment establishes that the ingredients of Section 68 are satisfied. Ratio versus Obiter: Ratio - An addition under Section 68 cannot be sustained where the AO relies solely or primarily on retracted statements recorded under Section 133A (or statements recorded under coercive circumstances) without corroborative material, and where the assessee produces documentary evidence establishing identity, creditworthiness and repayment. Obiter - Observations on the personal circumstances causing retraction (illness in family) and the extent to which specific operational metrics (rent, turnover, fixed assets) may be insufficient alone to discredit creditworthiness. Conclusions: The Tribunal upheld the appellate authority's deletion of the Rs.10,25,00,000 addition under Section 68. It concluded that the AO failed to bring cogent corroborative material beyond retracted survey statements; that documentary evidence and subsequent repayment proved identity, creditworthiness and genuineness; and that the CBDT circular and precedent require corroboration before making additions on such statements. Issue 2 - Disallowance of interest paid on alleged loans (consequential) Legal framework: Interest deduction or disallowance follows classification of the underlying loan transaction; if credit is not held to be unexplained under Section 68, related interest expense generally cannot be disallowed on that ground. Precedent treatment: Applied the principle that consequences of the primary finding on Section 68 govern associated deductions and disallowances; when loan receipts are held genuine, interest paid is allowable subject to general tax law rules. Interpretation and reasoning: Because the Tribunal sustained deletion of the Section 68 addition based on documentary proof and repayment, the disallowance of interest being consequential to the primary finding had no independent foundation. Ratio versus Obiter: Ratio - Consequential disallowance of interest cannot stand where the primary addition under Section 68 is not sustained. Obiter - None significant beyond the consequential application. Conclusions: The Tribunal dismissed Revenue's challenge to the deletion of the interest disallowance and upheld the appellate authority's deletion of the Rs.16,52,278 disallowance. Issue 3 - Disallowance under Section 69C for alleged commission paid to obtain accommodation entries (consequential) Legal framework: Section 69C addresses unexplained investments/expenses, including amounts paid to effect accommodation entries, but its application depends on proof of the underlying accommodation entry and unrebutted evidence. Precedent treatment: Followed authorities holding that where loans/credits are proved genuine (identity/creditworthiness/genuineness established and repayments shown), consequential allegations of commission for accommodation entries cannot be sustained absent independent corroborative evidence. Interpretation and reasoning: The Tribunal treated the commission disallowance as consequential to the primary finding on the genuineness of loans. As the Section 68 additions were rightly deleted on the available documentary evidence and corroboration, the linked Section 69C disallowance lacked support. Ratio versus Obiter: Ratio - Section 69C disallowance premised on accommodation entries cannot survive where the alleged accommodation entry (i.e., the loan) is established as genuine by documentary evidence and repayment. Obiter - The Tribunal observed that AO had not produced independent material to show the commission related to accommodation entries beyond the contested survey statements. Conclusions: The Tribunal upheld deletion of the Rs.5,12,500 disallowance under Section 69C as consequential to dismissal of the Section 68 addition. Cross-references and final operative finding The Tribunal consistently applied the principle that statements recorded during survey/search require corroboration and that retracted statements lack standalone evidentiary value (cross-referenced in discussion of Issue 1 and relied upon in Issues 2 and 3). Given documentary proofs of identity, bank transactions, financials of lenders, and actual repayment, the Tribunal concluded that the AO's additions and consequential disallowances could not be sustained and therefore dismissed the Revenue's appeal on all grounds.